are Question 4. Consider the market for used cars, where car owners may sell their vehicle to potential buyers. Suppose for simplicity that there are two types of used cars: of all cars are good cars (peaches) and a bad cars (lemons). Suppose also that each buyer, is willing to pay at most $12,000 for a peach, and at most $6000 for a lemon, while each seller values a peach at $10,000 and a lemon at $4000. Buyer Seller Peach Lemon Avg. Quality 12,000 10,000 6,000 4,000 8,000 6,000 (a) First, as a benchmark case, assume that the quality of the car is observable by all parties. Describe the equilibria of the used car market. (b) As another benchmark case, suppose that neither the sellers nor the buyers know the quality or any individual car but they know that or all cars are peaches and are lemons. Describe the equilibria of the used car market. (c) Now assume (perhaps more realistically) that, having driven it for a while, each seller knows the quality of their car, while any potential buyer cannot tell whether the car is a peach or a lemon just by looking at it. Suppose also that it is too costly to hire a third party to inspect the car and ascertain its quality. Describe equilibrium in the used car market. (d) Suppose that car sellers can issue guarantee. Is there any guarantee that a peach owner can offer that would alleviate the problem in the previous part.